Home / Opinion / Views /  The future of farmer producer companies could be brightened

In 2017, the Indian government reaffirmed its commitment to reduce rural distress among nearly 93 million farming households through efforts to double farmers’ income. What has been remarkable is the emergence of farmer producer companies (FPCs) as a viable way of supporting this approach.

The last two years have been tumultuous. Pro-market legislation introduced in 2020 was contested by farmers, leading to the eventual rollback of three laws. Covid increased the economic risk borne by farmers. After all, nearly 70% of farming households in India are small and marginal. An average farmer earns a little more than 10,000 per month (current prices) and nearly half of all farmers are estimated to be in debt. Most farms are rain-fed and exposed to climate risks. Small and marginal farmers operate with big disadvantages in terms of scale, diversification of crops, potential price risks and bargaining power.

FPCs, introduced in 2000, are a viable ‘new age’ option to address some of these challenges while maintaining India’s present welfare equilibrium. Operating on the long-standing welfare model of ‘collectivization’, FPCs function under the Companies Act of 2013, wherein shareholding farmers pool resources for better market linkages. But unlike older models, FPCs are meant to prioritize business and are assessed by the profits they earn.

A few months ago, during a farmers’ meeting in a distant village in Jharkhand, an attendee questioned the benefits of joining an FPC, since purchase prices offered by local mandi traders were the same as what FPC offered. A participating director of a local FPC replied that while FPCs may not appear lucrative in the short-term, they offer a chance to own a piece of business led by a professional team which constantly mentors its farmers on good cropping practices, creates market opportunities through e-commerce platforms and client networks, offers support for product branding and ensures transparency of profit distribution.

This promise of a profit-oriented agri-business maximizing value for its small and marginal farmer shareholders has gained immense popularity. By March 2019, 7,374 FPCs had been formed with a total paid-up-capital (PUC) of 860.18 crore. In 2021, the ministry of agriculture and farmers’ welfare launched a central scheme to promote 10,000 farmer producer organizations with an allocation of 6,865 crore. Additional funding opportunities have been provided by the Small Farmers Agribusiness Consortium (SFAC), National Bank for Agriculture and Rural Development (NABARD), and flagship schemes like Agriculture Investment Fund (AIF). But despite enabling policies and a pipeline of public funds, FPCs suffer from several systemic challenges. For a nascent FPC, there are three major practical issues, among others, to address.

First, mobilizing farmers and raising share capital from members is a critical activity for an FPC to sustain its operations during the initial years, a phase typically marked by high capital investment. While high agricultural income and landholding states like Haryana and Punjab offer a better likelihood of raising funds within local communities, states like Odisha and Jharkhand, with much lower disposable household incomes, may not see much action in the FPC space for a long time. Even states like Maharashtra, accounting for a large number of FPCs, have struggled with this challenge. Research has pointed out that nearly 65% of active FPCs in India were operating on meagre share capital before the pandemic hit. This needs to change.

Second, not all FPCs can absorb public funding equally. The national policy highlights the role of business development service providers, knowledge partners and technical institutions in helping nurture and foster FPCs. But a small-sized entity’s ability to engage with these service providers on fair terms is less discussed. Smaller FPCs also struggle in hiring full-time staff for operations, making it difficult to focus on brand building, marketing and consumer outreach, or navigating e-commerce platforms like e-National Agriculture Market. In a local market setting, where the odds are often stacked against it and one dry spell can have major business implications, an FPC may find itself under burdensome debt or losing financial viability quickly.

Third, FPCs continue to be a male-led model. Historically, group farming models tend to embed women in their traditional roles and positions. Hence, women’s membership of cooperatives and collectives is also on unequal terms, typically. This dynamic has hardly changed under FPCs. In interactions between these and the market, women farmers receive benefits last and least. Barriers to participation start very early. Women farmers are often unable to pay share capital for FPCs and are represented by men as their proxy owners. Social mobility and norms inhibit participation in FPC meetings, farmer gatherings, knowledge exchange visits or residential trainings.

So, what are the possible options to strengthen this movement?

The FPC ecosystem today has several direct and indirect government stakeholders, each aiming for a certain positive change. But it is missing a policy platform, like Poshan Abhiyaan, which can enable inter-agency convergence. Such a platform could take quick and well considered actions to address various input, marketing and credit challenges.

While initiatives like AIF create a pipeline of resources, the capacity of FPCs to absorb public funds should be further strengthened. Special hand-holding can be extended for farmers to prepare small-budget proposals or business plans. Government officials at district and state levels are critical stakeholders in mentoring and supporting FPCs. Furthermore, cluster-level federations set up under the One District One Product can mentor FPCs by engaging outreach workers.

Lastly, FPCs must enable farmer access to entitlements under PM Fasal Bima Yojana, PM-Kisan, Pradhan Mantri Krishi Sinchai Yojana, Soil Health Card, Kisan Credit Card and other schemes. The role of women in FPCs needs equal prioritization.

Vijay Avinandan, Manmeet Kaur & Anuradha Saigal are, respectively, assistant vice president, deputy manager and manager for research at Sambodhi Research.

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